The Bank of Japan has been likened to a "whale" due to its large presence in the Japanese stock market.

For more than 12 years, I have continued to purchase financial products called ETFs linked to stock indices, and have pushed up stock prices during this time with the power of huge amounts of easing money.

We will examine why this measure, which was once considered a "forbidden move" and was started as an emergency response to overcome the difficult situation, has turned into a permanent policy.

(Economic Department reporter Aya Shinoda)

It started as a 'temporary and unusual measure'

ETF purchases incorporated as one of the frameworks for large-scale easing measures by the Bank of Japan.

When did it start and for what purpose?

I decided to look into it from there.

The decision to introduce it was made at the Monetary Policy Meeting on October 5, 2010.

It was regarded as part of the "comprehensive monetary easing policy" and was noted at the time as "an unprecedented policy among the world's central banks."

Looking at the minutes, you can see that it was a painful decision.

President Shirakawa, who served as chairman at the time, repeatedly used the words "extraordinary" and "extraordinary," and warned against allowing this to become a permanent occurrence.

“[The ‘comprehensive monetary easing policy’ including the purchase of ETFs] is a temporary and unusual measure. If this is not done, there is a danger that extraordinary and unusual things will become permanent, so in order to clarify this, we will establish funds such as asset purchases to make this clear to the world.

” The Japanese economy was suffering from a strong yen and low stock prices.

The Bank of Japan explained that the purpose of purchasing ETFs is to "work on the risk premium (additional interest rate demanded by investors) and encourage the reduction of the premium."

By taking risks on its own, the Bank of Japan will support the risk-taking activities of companies and investors and encourage the revitalization of the stock market.

We aimed for the so-called “priming effect”.

On the 28th of the same month, it was decided that the upper limit of the outstanding balance of ETFs to be purchased would be set at 450 billion yen, and that the funds to be purchased would be managed in the form of a fund.

ETF purchases started as a temporary response to the crisis.

However, under Governor Shirakawa, the outstanding balance of JGB purchases was increased four times after that, and in October 2012, it was decided to expand it to 2.1 trillion yen.

With the goal of achieving the price target, the purchase quota will continue to expand as it continues to expand.

The turning point came in April 2013, when a different dimension of monetary easing began under Governor Kuroda.

The purchase of ETFs is listed as one of the menu items that make up the so-called "Kuroda Bazooka," and the Bank of Japan has announced a policy of doubling its holdings over the next two years, setting the pace of annual purchases to approximately 1 trillion yen. rice field.

We fundamentally changed the method used during President Shirakawa's time, where purchases were made within a certain framework, and decided to expand the amount of purchases.

We also abolished the "fund", which was a symbol of "temporary and unusual," because the seriousness of monetary easing would not be communicated to the market and the public.

Then, what was the purpose of ETF purchases at that time?

Although the original purpose of the policy was to "work on asset price premiums," it was upgraded as a means of achieving the price stability target of 2 percent as soon as possible.

``We will not adopt a gradual injection of force. We have included everything necessary to achieve a 2% price increase in about two years in this measure,''

said Governor Kuroda at a press conference. We will gradually increase the purchase amount of

In October 2014, we will purchase approximately 3 trillion yen annually, and in July 2016, we will purchase approximately 6 trillion yen annually.

In response to the spread of COVID-19, we decided to set an annual upper limit of 12 trillion yen for purchases in March 2020, leaving an annual target of about 6 trillion yen for the time being.

The actual purchase amount for the year was 7,136.6 billion yen, the largest ever.

On the other hand, in March 2021, the target of about 6 trillion yen per year was eliminated, and the target of ETF purchases was narrowed down to those linked to the Tokyo Stock Price Index = Topics.

Regarding this, Governor Kuroda said, "We are not considering reducing purchases, as we will flexibly purchase them as necessary."

However, purchases this year decreased sharply to 873.4 billion yen.

Last year, it decreased further to 630.9 billion yen.

The purchase amount of this year is zero as of January 27th.

did it work

What was the effect of ETF purchases?

In the "inspection" conducted in March 2021, the BOJ said, "By working on risk premiums, market volatility is suppressed. In other words, it is effective to carry out large-scale purchases when the market is greatly destabilized."

Certainly, when stock prices plummeted due to the impact of the new coronavirus, the purchase of ETFs seems to have had the effect of preventing market instability and stock prices from falling below the bottom.

On the other hand, the Bank of Japan strengthened the movement to buy ETFs when stock prices plummeted even though stock prices were on an upward trend.

In September 2021, when the Nikkei Stock Average rose to 30,670 yen, the highest price in about 31 years, we purchased 71 billion yen of ETFs.

When the TOPIX = Tokyo Stock Price Index falls to a certain level in the stock market in the morning, the Bank of Japan buys ETFs in the afternoon to support stock prices.

Market participants deciphered the BOJ's pattern of behavior, which turned into market expectations, and eventually it became a common sight.

It was touted as a “government-manufactured market,” and it has transformed into a “permanent market,” which the Bank of Japan once feared.

It has been 12 years since the introduction of the unusual policy of purchasing ETFs.

Takahide Kiuchi, who was involved in policy making as a member of the Bank of Japan's deliberation committee from 2012 to 2017, looks back as follows.

Takahide Kiuchi, Executive Economist, Nomura Research Institute,

“Policies aimed at normalizing the market have shifted to policies aimed at strengthening easing. The BOJ's purchase of ETFs meant that the BOJ's purchase of ETFs had the effect of boosting the market's performance. There is no evidence that it has improved.There is no evidence that buying ETFs has boosted stock prices and created a positive economic impact through the wealth effect.There is no evidence that BOJ buying has improved market performance.Buying. I think the main purpose of maintaining the frame is to show that the stance toward easing has not receded.”

Shingo Ide, senior researcher at NLI Research Institute, who has been conducting research on the topic of ETF purchases by the Bank of Japan for many years, points out the following issues.

Shingo Ide, Senior Researcher, NLI Research Institute

: “The fact that there was an effect of buying when the financial market was greatly swayed means that there was no need to buy in normal times. In the first place, it may have been unreasonable for the central bank to use the purchase of risky ETFs as a means to achieve its monetary policy objectives.”

Was an exit or retreat planned?

The purpose of ETF purchases has changed significantly in the last 12 years.

Although it started as a "temporary and unusual" measure, it has steadily expanded, and even now, when there are almost no purchases, it is still positioned as one of the frameworks for large-scale monetary easing measures.

``Risk policies should be designed with an ``exit'' or a ``retreat'' in advance.

I've heard this phrase before. is not visible.

In the next installment, I will discuss how to deal with the enormous amount of risk assets that have accumulated as a result of this policy, with the theme of this "exit."

attention schedule

We have a series of important events next week.

On February 2, the US central bank and FRB will hold a meeting to decide monetary policy.

While some speculate that the interest rate hike may be reduced from the previous time, attention will be paid to what kind of result it will bring.

The European Central Bank and ECB will also meet on the same day.

There are also concerns about the impact on the global economy, and we can't take our eyes off the results of the European and American central bank meetings.